Fixed Indexed Annuities: Pros and Cons
September 17, 2019 by Rachel Cautero, SmartAsset
Looking for a long-term, relatively risk-free savings option? Then you might consider a fixed indexed annuity. This is a financial instrument that provides investors with a guaranteed interest rate over a set amount of time. A fixed indexed annuity, also know as FIA, combines the low-risk nature of a fixed annuity with the potential returns of indexed annuities. Here are the pros and cons so that you can decide if a fixed indexed annuity is right for you.
Fixed Indexed Annuities: The Basics
A fixed indexed annuity is a long-term investment that provides investors with a guaranteed minimum interest rate over a set number of years paid out by the insurance company that issued it. FIAs also have the potential to earn additional interest based on market performance.This type of annuity is usually based on an index, such as the S&P 500, but can also follow other indexes as well, depending on investor preference. Any gains are locked in on an annual basis on the contract anniversary date. This is important to note because you may not see what you’ve earned until that date every year.
Fixed indexed annuities can be complicated though. They combine many of the characteristics of both a standard fixed annuity and a variable annuity. A fixed annuity offers investors a predictable return on the money they invest. A variable annuity offers investors the chance to invest in stocks, bonds and money market instruments. This comes with a higher level of risk and no guarantee of returns.
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